Monday, September 20, 2010

Think H.264 is Now Royalty-Free? Think Again - and the "Open Source" Defense is No Defense to MPEG LA

(PREFACE -- I have wanted to write this post for a long, long time. It is about encoding -- but not the technical aspects of encoding and the quality ramifications of your encoding solution. It is, instead, about what I believe to be a widely misunderstood -- and serious --business implication surrounding your encoding solution. Specifically, it is about licensing ... and business risk. As dry as it sounds, I urge you to read it, because those risks are real.)

With that -- here it is ...

Ahh, the promise of web and mobile video – HD video delivered anytime, anywhere, on any device. It sounds so easy. But, it isn’t. The overall workflow is complex – and the process from content creation to content syndication is both a technical and business minefield.

One central and critical piece in that workflow -- video encoding and transcoding – is one such minefield, fully appreciated by only a few. This is, in part, due to the fact that it sounds incredibly techie and complex. And, in many respects, it is. But, that doesn’t mean that you shouldn’t understand it. Encoding and transcoding is the process of compressing your video files so that they can be delivered anywhere you want (on the Internet, onto mobile devices). It is a morass, plain and simple -- and it is fraught with complexity, confusion and, yes, peril. This complexity and confusion is only accelerating in this day and age where we see an unending string of new platforms and products – not to mention new codecs, such as Google’s newly launched open source WebM codec initiative.

Case in point, the new battle royale brewing between said WebM (and its VP8 video codec) – the burly upstart in this case – and MPEG LA’s MPEG-4 (and its H.264 video codec), the reigning heavyweight champion. H.264 is widely regarded as being the current “gold standard” high quality video codec – it is used by Apple, among others, to deliver pristine HD quality videos (Apple, in fact, is a member of the MPEG LA patent consortium). Google, as we all know, wants to unseat the champ by offering its newly sponsored high quality codec free to the world (I know it sounds incredibly generous, but Google has its own reasons, believe me).

Here’s the crucial rub – MPEG LA’s H.264 isn’t free – it is a royalty-bearing codec that requires a license.

But, you say, MPEG LA recently announced that it will no longer charge royalties for the use of H.264. Yes, it’s true – MPEG LA recently bowed to mounting pressure from, and press surrounding, WebM and announced something that kind of sounds that way. But, I caution you to read the not-too-fine print. H.264 is royalty-free only in one limited case – for Internet video that is delivered free to end users. Read again: for (1) Internet delivery that is (2) delivered free to end users. In the words of MPEG LA’s own press release, “Products and services other than [those] continue to be royalty-bearing.”

But, you may ask (understandably confused by it all), what does that mean to me and why does this matter? Here’s why – any business that publishes and distributes its videos onto the Internet or across mobile networks (and that likely includes yours) is encoding those videos either themselves or, more likely, via a third party encoding service or online video platform (OVP). And – big gulp here -- encoders and decoders are specifically called out in MPEG LA’s recent press release as continuing to be fully royalty-bearing. That means that MPEG LA absolutely takes the position that H.264 cannot be used for encoding without a license – and that means royalty payments in certain high volume cases. And, those royalties aren’t cheap – meaning that potential legal exposure for both past and present unlicensed usage can be significant … very significant ... in high volume cases if that license is not obtained.

Now, your business, encoding service or OVP may take the position that no license is needed from MPEG LA for encoding, because they utilize FFmpeg, the best known open source video encoding solution in the marketplace. Many, if not most, professional encoding services an OVPs, in fact, do use FFmpeg. And, FFmpeg, in turn, features X.264, an open source video codec implementation of MPEG LA’s H.264 royalty-bearing video codec. X.264 is not H.264, so no MPEG LA license is required. Sounds rational, right?

Perhaps, but predictably MPEG LA, its consortium of patent holders and other licensing bodies vehemently – and I mean vehemently -- take the position that open source implementations of their codecs absolutely infringe (remember, this risk is not exclusive to MPEG-LA and its codecs). In their view, there is no free pass! Let’s face it – patent holders and their licensing bodies are in the business of getting paid – they are not in the business of philanthropy. MPEG LA, in fact, continues to make “noises” that even Google’s royalty free WebM gift to the world (which resulted from its acquisition of On2 and its VP8 video codec) infringes the rights of its patent holders. In effect, MPEG LA is telling WebM users “Buyers Beware!” (Surprising, huh, that MPEG LA consortium member Apple and Google disagree on this one?)

Don’t believe those risks are real? Take a look at FFmpeg’s own official website. Right there – in plain sight – FFmpeg not only acknowledges those risks, it expressly cautions its users that any commercial usage (which is what we are talking about here) is at their own peril. Specifically, here is FFmpeg’s official word on the subject in the form of a relevant Q&A that is taken verbatim from its website:

Q: Is it perfectly alright to incorporate the whole FFmpeg core into my own commercial product?

A: You might have a problem here. There have been cases where companies have use FFmpeg in their products. These companies found out that once you start trying to make money from patented technologies, the owners of the patents will come after their licensing fees. Notably, MPEG LA is vigilant and diligent about collecting for MPEG-related technologies.

So, there it is. Right there. Thousands of companies use and rely upon FFmpeg right now to encode their videos (either directly or indirectly via an encoding service or OVP) for commercial purposes without a net; without the codec licenses and royalties that patent holders and licensing bodies contend are needed and must be paid. This is not meant to cause panic – it is simply meant to open eyes to one highly misunderstood and overlooked reality in this highly complex world of web and mobile video.

So, what’s a business to do if its videos are encoded with FFmpeg? Stop distributing those videos across the web or across mobile networks? Absolutely not – video is simply too impactful and, for most businesses, should be a central piece of its customer engagement and monetization strategy.

But, if your business does do video, do it smartly. Cover all your bases. Don’t take short-cuts. Ask questions. Ask your encoding service provider or OVP if they use officially sanctioned and licensed codecs. If they don’t, then you may want to switch. You are not immune from the risks that they take in the minds of patent holders (MPEG LA confirms this). At the very least, if you decide that switching costs are too great, then you may want to ask your service provider or OVP for indemnification of those risks. But, depending on the size of your service provider, that may be cold comfort.

Bottom line – your videos are valuable. They need to be in the right hands (both on the technical and business side). The video landscape is complex enough as it is. You need simplicity and peace of mind, not more headaches. Potential legal exposure is not another complexity you need. Use a solution that dots the “I’s” and crosses the “T’s.”


Peter D. Csathy (Twitter name pcsathy) said...

Well, thanks! Not sure if that comment is real or a bot, but I'll take it!

Anonymous said...

You don't exactly lie with your article, but you do
skip out on the details by saying that fees apply
in some high volume cases. Why didn't you give the
details--rather than just spreading fear,
uncertainty, and doubt. Are you paid by Google
to promote FUD?

Peter D. Csathy (Twitter name pcsathy) said...

Hmmm ... not sure what you mean that fees apply in some high volume cases???? The point is that we know that fees apply (as stated by the codec licensing bodies). But, we've got you covered so that you don't have to worry about it -- how? Because we do all the codec licensing for you -- and "bake in" those costs with our products (i.e., there are no additional costs).
That ain't fear -- that's complete transparency about a real business risk that is largely misunderstood.

Anonymous said...

Good evening

Definitely gonna recommend this post to a few friends

Anonymous said...

I think Anonymous is referring to the details in the license agreement that state if your video is under 12 minutes in length their are no royalties... and if you are less than 100,000 subscriptions to your video then no royalties are due either?

For (b) (1) where an End User pays directly for video services on a Title-by-Title basis
(e.g., where viewer determines Titles to be viewed or number of viewable Titles is
otherwise limited), royalties for video greater than 12 minutes (there is no royalty for a
Title 12 minutes or less) are (beginning January 1, 2006) the lower of 2% of the price
paid to the Licensee (on first Arms Length Sale of the video) or $0.02 per Title
(categories of Licensees include Legal Entities that are (i) replicators of physical media,
and (ii) service/content providers (e.g., cable, satellite, video DSL, internet and mobile)
of VOD, PPV and electronic downloads to End Users).10 Where an End User pays
directly for video services on a Subscription-basis (not ordered or limited Title-by-Title),
the applicable royalties per Legal Entity payable by the service or content provider are
(beginning January 1, 2006) 100,000 or fewer Subscribers during the year = no royalty;
greater than 100,000 to 250,000 Subscribers during the year = $25,000; greater than
250,000 to 500,000 Subscribers during the year = $50,000; greater than 500,000 to
1,000,000 Subscribers during the year = $75,000; greater than 1,000,000 Subscribers
during the year = $100,000.11